WWD: Chow Tai Fook Plots Expansion for Hearts On Fire

By Kate Whitehead,
Posted on July 28, 2014:

Chow Tai Fook, a giant in the jewelry world, is plotting the Chinese expansion of its latest acquisition: Boston-based diamond specialist Hearts on Fire.

Chow Tai Fook, which bought the American company for $150 million last month, plans to open 200 Hearts on Fire stores in Mainland China and Hong Kong within three years. Two stores will open by the end of the year in Hong Kong and Shanghai. These will complement Hearts on Fire’s existing Asian network of eight stores in Taiwan.

“Hearts on Fire is already established as a premium luxury diamond jeweler,” said CTF managing director Kent Wong. “We want to bring it into the Greater China market because Hong Kong, Macau and Mainland China will be among the fastest-growing jewelry markets in the coming decades, owing to economic growth.”

Wong added that Hearts on Fire’s success in Taiwan bodes well for its growth.

“They’ve learned a lot from Taiwan and it has helped them to understand the buying preference of Chinese people,” said Wong, who began his career with the Chinese jeweler 37 years ago.

A Hearts on Fire spokeswoman noted, “We opened the first HoF brand boutique in Taiwan 10 years ago with the long term plan of eventually bringing the brand to Mainland China. The Taiwan retail business became such a strong business for HoF that we continued expanding within the Taiwan market. Now we will be building on this strength as we enter new Asian markets.”

This is the first international acquisition for the Hong Kong-based CTF, which has about 2,000 stores in 470 cities across China and is expanding rapidly. CTF has set an ambitious sales target of 2,000 new stores under its own moniker on the mainland in the next 10 years — that’s 200 new stores a year.

CTF sees young Chinese consumers moving away from traditional gold jewelry toward gem-set jewelry and diamonds, and believes Hearts on Fire will ensure it can capitalize on that trend.

Wong also pointed to the increase in buying power of the middle- and upper-class customers, who are very brand-aware and have an eye for American products and designs.

“Those born in the 1980s and 1990s want to spend money on contemporary jewelry. They want to show their social status, which is different from their parents — I think this trend will continue in the coming decades,” said Wong, adding that Hearts on Fire’s state-of-the-art diamond-cutting technology was a big draw for CTF.

Wong said CTF will retain Hearts on Fire’s marketing and jewelry design operations in Boston, the firm’s headquarters since it was founded in 1996 by Glenn and Susan Rothman. At the time of the acquisition, CTF said Hearts on Fire would be run as a stand-alone business led by current ceo and chairman Glenn Rothman.

Hearts on Fire reported audited net sales of about $99.3 million and $104.8 million for the financial years ended Dec. 31, 2012, and Dec. 31, 2013, respectively, CTF said in June. Wong declined to give a sales forecast for the business.

Hearts on Fire is distributed through about 550 retailers in 31 countries, and it has 10 freestanding stores of its own — one each in Las Vegas and Philadelphia, and the eight in Taiwan.

Unlike CTF, which has stores across the spectrum of Chinese cities, Wong said Hearts on Fire’s retail rollout will be limited to first-tier and second-tier cities. It will be a stand-alone brand, but in addition to individual stores, there will also be Hearts on Fire shops positioned within Chow Tai Fook stores.

“By offering a shop-in-shop, it means that when the customer comes to the CTF store, we can offer them more diversified products,” said Wong.

One interesting change to watch for will be a shift in attitudes toward bridal jewelry, which accounts for about 35 percent of CTF’s sales. Most young couples who marry in China buy a pair of wedding bands and about 50 percent of the brides also receive a diamond engagement ring. Wong expects this to increase and Chow Tai Fook is investing heavily in marketing to ensure that that happens.

“In developed economic countries like America, about 80 to 90 percent of brides get a diamond engagement ring,” said Wong. “Within the next 10 years, Chinese brides getting the engagement ring will increase from 50 to 80 percent. There is a lot of opportunity for diamond engagement rings in mainland China.”

Last year, CTF launched a successful marketing campaign — “Wedding Proposal” — in Hong Kong and on the mainland that encouraged couples to upload video clips of their marriage proposal moment. The campaign, with clips loaded onto YouTube, received 30 million viewers within three months, Wong said.

“We want to educate young people about how they can express their love to their girlfriend by giving them an engagement ring with a very exclusive story,” Wong said.

The acquisition took just two to three months, a fairly swift deal, but one that was easy because both parties know each other well.

“The diamond industry is such a small world and all we have is trust and reputation. Everybody has to safeguard their reputation to execute the highest integrity. They know us and we know them,” said Wong.

CTF’s net profit for the year ending March 31 was 7.45 billion Hong Kong dollars, or $961 million, compared with 5.68 billion Hong Kong dollars, or $732.7 million, a year ago. Revenue rose 34.8 percent to 77.4 billion Hong Kong dollars, or $9.98 billion.

CTF has no plans for further acquisitions — Hearts on Fire was a one-off because it is such a good fit and complimented the company strategy, Wong said.

“Hearts on Fire is positioned as a premium luxury brand that is complementary to CTF, which is classified as mass luxury. HoF customers are looking for something excellent, so they are willing to pay a premium,” Wong said.

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WWD HOF CTF Expansion